Calculating the duration of a security using the Macauley method (MDURATION)

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Another way to evaluate a bond is to use the modified DURATION, or MDURATION function. The MDURATION function divides a bond’s duration by 1 plus the market yield divided by the number of coupon payments per year. The resulting figure is more conservative than the straight duration calculation because it’s less sensitive to changes in yield.

- [Instructor] In the previous movie,…I showed you how to evaluate a bond…by using the duration function.…Another way to evaluate a bond is to use the…modified duration, or mduration function.…The mduration function is a more conservative…evaluation than the straight duration calculation…because it is less sensitive to changes in yield.…I'll demonstrate how to use the mduration function…and also compare it directly to duration.…In this movie, my sample file is…CalculatingModifiedDuration_04_08…and you can find it in the Chapter 4 folder…of your exercise files collection.…

Mduration uses the same arguments as the duration function,…so in cell C3, you can see the settlement date.…That's the date that you actually take possession…of the security.…C4 is the maturity date.…The date the investment ends.…Coupon interest in cell C5 is the amount…of interest you receive spread out…among your coupon payments in a year.…Yield in C6 is the annual percentage yield,…or the amount that your principal goes up each year.…

That's independent of the coupon interest.…

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10/7/2016

Analyzing financial data can seem intimidating, but Excel 2013 has a wide range of functions that you can use to perform these analyses quickly and easily. This course shows users how and when to use each of the functions available to them in Excel 2013. Learn how to evaluate cash flows; calculate depreciation; determine rates of return, bond coupon dates, and security durations; and more.

Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.